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16 Dec 19
Why is my doctor retiring early? Tapered annual pension allowances
Gone are the days when your doctor knew you and your whole family from birth until old age writes David Oversby, Independent Financial Adviser with True Bearing. Nowadays, you’re more likely to visit a large GP practice with several doctors, and see a new doctor each time you visit.
Is this because doctors are now retiring earlier? If this is the reason, then it’s because the decision to retire early has been taken out of the doctor’s hands. It is due to a small piece of legislation called Annual Allowance (AA), also known as the tapered annual pension allowance, which was introduced in 2006. This legislation limits the amount that can be paid into a pension each year.
Doctors are retiring early and it is often not because they want to, but because the ﬁnancial implications of continuing to work are not beneficial to them.
What does ‘Tapered-Annual Pension Allowance’ mean?
There has been a lot written about the impact of this on Doctors’ pension schemes. At a recent Personal Finance Society seminar, accountants demonstrated how high earning Doctors could ﬁnish up paying 105% marginal tax on additional overtime with the tapered annual pensions allowance initiative. This ostensibly means that some Doctors will end up paying HMRC for the privilege of working and caring for their patients. According to the British Medical Association, in parts of England, almost every GP had either reduced or planned to reduce their working hours to avoid paying this penalty.
The Impact of Tapered Annual Pension Allowance
The impact of a tapered annual pension allowance on people with an adjusted income over £150,000 and a threshold income over £110,000 is for every £2 of income they have over £150,000, their annual allowance is reduced by £1.00, the maximum reduction being £30,000. Consequently, anyone with adjusted income of £210,000 or more will have a highly reduced annual pension allowance of £10,000.
Earlier in 2019, the Government announced that the Treasury would review the rules around tapered annual pension allowances and discuss proposals to scrap the annual allowance mechanism altogether for deﬁned beneﬁt schemes, such as the NHS pension scheme. Doctors would not be alone in celebrating if the tapered annual pension allowance was scrapped, although this is far from being agreed. Ultimately, we and the NHS would beneﬁt as our Doctors stop retiring early, stop turning down overtime and stop moving abroad.
If you are a GP, or if your GP is retiring, take note as changes are in the making. Next time you visit your doctor check if they have a repeat prescription for Financial advice!
Source: figures listed in the above article were obtained from Royal London